Businesses bear brunt of UK Budget tax rises as borrowing prices soar | Invesloan.com

Today’s agenda: Microsoft and Meta results; Starbucks freezes prices; Biden’s ‘garbage’ gaffe; Volkswagen’s crisis; and Halloween in Northern Ireland

Good morning. Rachel Reeves has announced a dramatic UK Budget funded by a £40bn tax rise — the largest increase for a generation — and extra borrowing averaging £28bn a year over the parliament. The chancellor has also raised spending by £70bn, or about 2 per cent of GDP, for 2026-27. Here’s a breakdown.

Who will be taxed the most? Businesses will bear the brunt of a £25bn annual increase in employer national insurance contributions. But the Office for Budget Responsibility has forecast that bosses will pass on 76 per cent of the tax rise to workers through lower wages. Britain’s wealthiest will also be hit by a string of tax rises, including on private equity, second homes, private jets and private schools. The chancellor also ended the use of offshore trusts to shield assets from inheritance tax, part of a wider move to abolish the non-dom regime aimed at raising £12.7bn over the next five years.

What does Reeves plan to spend on? Mostly public services. The lion’s share will go to the NHS, with Reeves promising a £22.6bn rise in its day-to-day budget over two years and a £3.1bn increase in its capital budget — in what she said was the biggest sum of money since before 2010, outside the pandemic. Schools also received a big cash boost of £6.7bn for capital investment next year, a 19 per cent increase in real terms.

How have markets reacted? Government borrowing costs climbed to a five-month high as analysts said investors were “caught unaware” by the scale of borrowing. The 10-year gilt yield climbed to 4.37 per cent from a low of 4.21 per cent, reversing an initially positive reaction as Reeves spoke. The domestically-focused FTSE 250 index climbed as much as 1.7 per cent during her speech, its biggest one-day increase since July, before paring back to trade up 0.4 per cent. One portfolio manager said the Budget provided “certainty” to smaller companies.

If you missed yesterday’s Budget, we have a quick guide to the key points here, as well as more analysis from our experts:

• Reeves’ choices: Britons hope increased spending will deliver better services, but success is not guaranteed, writes Martin Wolf.

• A brutal Budget: Tighter spending for most government departments may cause political rows, writes Stephen Bush in Inside Politics. Sign up for his newsletter for more on the political fallout today.

• Did Labour mislead? Reeves told the Financial Times she had no plans to be “a big tax-raising chancellor”. Jim Pickard looks at how the chancellor has broken with previous promises.

• The FT View: Reeves must now deliver on her investment plans, or taxes will rise even further, writes our editorial board.

Scroll down for today’s featured chart on borrowing and an economic analysis of Labour’s first Budget. You can find our full coverage of yesterday’s fiscal event here.

Today, don’t miss consumer editor Claer Barrett’s live Budget Q&A with experts on taxes and pensions at noon GMT. And here’s what else I’m keeping tabs on:

• Economic data: The European Central Bank publishes its economic bulletin, while the EU has October inflation data and Germany has September retail sales figures.

• Lebanon: US envoys are due to present a proposal to Israeli Prime Minister Benjamin Netanyahu to end his country’s war against Hizbollah.

• Results: AB InBev, Amazon, Apple, BNP Paribas, Intel, Mastercard, Merck, Shell, Société Générale, Stellantis, TotalEnergies and Uber are among those reporting. See our Week Ahead newsletter for the full list.

Join FT reporters and commentators tomorrow for a subscriber-exclusive webinar to discuss the UK’s economic prospects after the Budget. Register here for free.

Five more top stories

1. Microsoft reported double-digit gains in quarterly revenue and profit driven by strong demand for cloud computing, but its shares slipped after it warned that growth was cooling and artificial intelligence-related spending would continue to rise. Here’s more from the tech giant’s earnings yesterday.

2. Starbucks has announced a menu price freeze as it attempts to stem a sharp decline in customer traffic. Brian Niccol outlined operational changes during his inaugural call as chief executive with Wall Street analysts yesterday, including prioritising service in ceramic mugs and the return of cups labelled by Sharpie pen.

3. Kamala Harris has said she “strongly” disagrees with “any criticism of people based on who they vote for” as Donald Trump slammed the vice-president for comments made by President Joe Biden that appeared to call the Republican candidate’s supporters “garbage”. Read the full story.

• Challenging the vote: An army of 230,000 Republican activists have been co-ordinating a plan to legally challenge results that go against Trump.

4. Activist investor Carl Icahn has suffered a new blow to his ailing financial empire as its largest investment runs into financial difficulties. Icahn’s publicly listed holding company has fallen more than 10 per cent this week after a small Midwestern refinery it owns suspended its dividend, cutting off one of the veteran investor’s crucial sources of cash.

5. Samsung Electronics fell short of analysts’ expectations as its key chip division reported an operating profit of $2.8bn in the third quarter. The figure was much smaller than that of domestic rival SK Hynix, highlighting the widening gap in their competitiveness in advanced memory chips. Here’s more on the cost of Samsung’s failure to exploit the AI boom.

News in-depth

Volkswagen is facing its most severe crisis in decades, cutting jobs and factories as it battles cheaper Chinese rivals and confronts a costly transition to electric vehicles. But the fight extends beyond Europe’s largest carmaker, shaking the pillars of Germany’s postwar Wirtschaftswunder, or economic miracle, with long-lasting implications for the country’s brand of capitalism.

We’re also reading . . . 

• Robert Fico: Slovakia’s prime minister has tightened his grip on the country, using Hungarian leader Viktor Orbán’s playbook as inspiration.

• Gender-gap election: Can the US stomach a woman as president? Multiple polls suggest the question remains open, writes historian Elizabeth Cobbs.

• Harris’s other foe: Apart from Donald Trump and his dark rhetoric around immigration, the vice-president has another pressing challenge to getting votes: inflation.

Chart of the day

Some extra borrowing was widely expected in Rachel Reeves’ first Budget. But the verdict from the Office for Budget Responsibility is that it amounts to one of the biggest fiscal loosenings of recent decades, with overall borrowing set to be £142bn higher than previously expected between 2024-25 and 2028-29.

Take a break from the news

Today, Halloween may feel like an entirely American excuse for candy and consumerism, but its origins are in the Celtic festival of Samhain. Join Jude Webber in Northern Ireland as she explores what Europe’s largest spooky celebration means for one city’s cultural reinvention.